KANSAS CITY— When Hostess Brands, Inc. announced in 2012 it was liquidating its assets after it was unable to reach a labor agreement with its unions, C. Dean Metropoulos & Co. immediately expressed interest in acquiring the company’s snack cake assets. “Our family would love to purchase these iconic brands,” Daren Metropoulos, a principal at Metropoulos & Co., told Businessweek within days of the Hostess announcement. “We are actively pursuing this deal.” A few months later, the transaction was completed, and in July 2013, Hostess snack cakes returned to supermarket shelves following an eight-month hiatus. The company promoted the rebirth as the “sweetest comeback in the history of ever.”Josh Sosland, editor of Milling & Baking News. 
Source: Sosland Publishing Co. 

Having largely liquidated their holdings very profitably three years later, Metropoulos & Co. no longer is the leading shareholder of Hostess Brands. Still, the announcement the J.M. Smucker Co. will purchase Hostess for $5.6 billion underscores the foresight of Metropoulos’ actions 10 years ago. For the commercial baking industry, the Smucker-Hostess acquisition is historic.

To begin with, the transaction is the largest ever in the US bread and cake category, and by a wide margin. By way of comparison, recent prominent acquisitions in the bread category have included FGF Brands Inc. buying Weston Foods Inc. for $1.2 billion; Grupo Bimbo acquiring East Balt Bakeries for $650 million in 2017; and Flowers Foods, Inc. purchasing Dave’s Killer Bread in 2015 for $275 million. Earlier major transactions included Bimbo’s purchase of Sara Lee Bakery in 2010 for $1 billion, Bimbo’s purchase of other major Weston brands in 2008 for $2.4 billion; Sara Lee’s 2001 acquisition of Earthgrains for $1.9 billion; and Interstate Bakeries’ 1995 purchase of Continental Baking Co. from Ralston Purina for $550 million. The latter deal included the snack cake business Smucker is acquiring, 28 years later — for more than $5 billion.

Swelling the value of the Hostess deal is a price multiple of 3.3 times sales and 17 times EBITDA. The last large US snack cake transaction (excluding Hostess) was at 1 times sales — the $175 million acquisition of Tasty Baking Co. in 2011 by Flowers Foods, Inc.

Comparing the fates over the past 10 years of Hostess with other large commercial baking companies offers another startling way to see the ultimate success the Hostess snack cake business enjoyed. In 2013, the group led by Dean Metropoulos paid $410 million for most of the Hostess snack cake assets, including Hostess and Dolly Madison branded products together with five baking plants.

Fast forward 10 years, and Hostess’ market capitalization has, thanks to the high valuation of Smucker’s buyout offer, grown to nearly match the only other publicly traded baking company in the United States. Bolstered by an infusion of $250 million to upgrade production facilities, a major distribution conversion to a warehouse-delivery model and heightened attention on marketing, promotion and innovation, the Metropoulos investment of $410 million in a business nearly left for dead has blossomed into a company with a market capitalization of $4.45 billion. That compares with Flowers Foods at $4.9 billion and Grupo Bimbo SAB de CV at $21.5 billion. Flowers and Bimbo both trade at valuations just beneath 1 times sales. The heady Hostess valuation at 3.3 times sales more closely resembles Mondelez International, Inc., and PepsiCo, Inc., which have touched 3 times sales in recent years.

Smucker is acquiring Hostess at a time of enthusiasm among consumer-packaged foods companies about the growth potential for the snack cake market. Dirk Van de Put, chairman and chief executive officer of Mondelez, last month said, “We see baked snacks as a natural extension of the biscuits market” and spoke at length about its promise. Regardless of how this category’s future plays out, the soon-to-be completed 10-year chapter when the Hostess Brands snack cake business soared as an independent company truly stands as a success story for the ages.